The Dorchester Hotel Ltd V Vivid Interiors Ltd

THE DORCHESTER HOTEL LTD V VIVID INTERIORS LTD

Technology and Construction Court

Coulson J

19 January 2008

THE FULL TEXT OF THE JUDGMENT OF COULSON J

A. INTRODUCTION

1. The Claimant engaged the Defendant to carry out the refurbishment of its hotel. The works were completed in about September 2007. On 19th December 2008, the Defendant commenced adjudication proceedings on its final account claim. The Referral Notice was accompanied by 37 lever arch files, which included six substantial witness statements and two experts' reports of 30 and 20 pages respectively. Although an extension of the 28 day adjudication period has been agreed, extending the Adjudicator's time to reach his decision until 28th February 2009, the Claimant maintains that, in all the circumstances, the timetable is too tight and that there is a very real risk of there being a breach of natural justice. It seeks declarations to that effect in these Part 8 proceedings. Accordingly, this claim raises the novel question of the extent, if at all, to which the TCC should intervene in an ongoing adjudication in connection with potential breaches of the rules of natural justice.

2. The background to this dispute can be briefly summarised. The contract between the parties incorporated the JCT Standard Form of Building Contract (1998 Edition). Clause 41A of those conditions stipulates that the Adjudicator must reach his decision within 28 days of the Referral Notice, or 42 days if the claiming party (in this case the Defendant) consents to such extension. It is also open to the parties to agree a longer period than 42 days.

3. The Defendant's draft final account in the approximate gross sum of £4.39 million was provided on 28th March 2008 at the end of the six month deadline provided by the contract. The documentation made plain that further information would be provided by the Defendant. That information was provided in a relatively piecemeal fashion between May and October 2008, with consequential changes to the total sum sought. By 28th October 2008, the gross final account claim stood at £4.032 million, with a net sum allegedly due of £1.788 million. It appears that little happened after that until 12th December 2008, when the Defendant served the Notice of Intention to Refer in respect of the final account, in the revised net sum of £1.538 million.

4. The Referral Notice itself was issued on 19th December 2008. It was 92 pages long. As noted above, it incorporated 37 lever arch files divided into six sections. The claims covered a variety of heads, including a net claim for executed works, including variations, of £1,106,091.11; a claim for a full extension of time of 16 weeks to 28th September 2007; a claim for loss and expense of £432,126.98; and a claim for the return of liquidated damages in the sum of £60,000.

5. It appears that within the 37 files there were five entirely new files. Three of those contained the statements and the experts' reports to which I have previously referred. One file is said to contain a remeasurement exercise, although it is now alleged by the Defendant, somewhat oddly, that that remeasurement exercise is actually irrelevant to its final account claim. I am bound to say that the Referral Notice does not make that clear at all. The fifth and final new file is said to contain material specifically requested by the Claimant during what final account negotiations there were in the autumn of 2008. In addition, and perhaps more importantly for present purposes, it seems that many of the individual claim figures within the final account have been recast or revised so that, on the material that I have seen, the majority of the individual claim figures are different, albeit by a relatively modest amount, from those claimed in March 2008.

6. The Adjudicator, Mr Eric Mouzer, has been previously involved in valuation disputes on this contract. He was not prepared to accept the reference unless the Defendant agreed to disregard the holiday period from 24th December 2008 to 4th January 2009 for the purposes of calculating the 28 days. The Defendant properly agreed to this. That extended time for completion of the adjudication to 28th January 2009. It is my understanding that it remains the Adjudicator's view that this timetable is sufficient, although it may be that he reached that conclusion before looking at the detail within the 37 files.

7. At all events, the Defendant has accepted that such a period is not long enough. The Defendant has proposed a timetable pursuant to which:

(a) the Claimant has until 28th January 2009 to respond to the claim;

(b) the Defendant can serve a Reply by 11th February 2009;

(c) the Claimant can serve a Rejoinder by 18th February 2009; and

(d) the Adjudicator will provide his decision by 28th February 2009 or such later date as the Adjudicator may reasonably require.

Without prejudice to the points raised in this Part 8 claim, the Claimant has agreed to this timetable as representing the best that it could achieve, the Defendant having made clear that no further extensions in relation to the time for service of the Claimant's response will be entertained.

8. In this Part 8 claim, the Claimant seeks the following declarations:

"(1) There is a serious risk of a breach of natural justice in the conduct of the adjudication if the adjudication is conducted in accordance with the present timetable … because

(i) In the context of a complex final account dispute the brevity of the time afforded by Vivid to The Dorchester, namely a period of only 18 working days between 5th January and 28th January 2009, precludes The Dorchester from a reasonable and fair opportunity adequately to review the 92 page Referral and the accompanying 37 lever arch files of evidence (some of which contains new material and/or different amounts or bases of claim) and hence from formulating and submitting its response and factual and expert evidence. In consequence, in breach of natural justice, The Dorchester is or would be deprived of a reasonable and fair opportunity to be heard in answer to the dispute referred to adjudication.

(ii) Absent The Dorchester being allowed a reasonable and fair opportunity adequately to review the Referral and the accompanying evidence and to formulate and submit its response and factual and expert evidence in response to each of the claims made in the final account, the Adjudicator is unable to carry out his duty of deciding the case impartially and fairly as between the parties within the time limits allowed. Vivid would have an unfair tactical advantage over The Dorchester with regards to its submissions and evidence in support given the size and complexity of the claim and the length of time which it has had to consider and formulate its claim compared to the significantly less time that The Dorchester has been permitted to respond.

(2) Unless the parties agree a realistic timetable which allows The Dorchester a reasonable and fair opportunity adequately to review the 92 page Referral and the accompanying 37 lever arch files of evidence and to formulate and submit its own Response and factual and expert evidence in response, any decision issued by the Adjudicator against the existing timetable … would be unenforceable by reason of breach of natural justice.

(3) In the light of declarations 1 and 2, the Adjudicator is entitled to resign the reference if the timetable is not extended by agreement of the parties to allow The Dorchester a reasonable and fair date to serve its response. In the event that the Adjudicator resigns, Vivid will be held responsible for the Adjudicator's fees in full."

9. The Claimant's particular concern is the date for its response of 28th January 2009. It is said that this is only 18 working days after 5th January and is simply not long enough to respond to the detailed claim now made, particularly given the new evidence and the wide variety of altered figures.

10. In response, the Defendant has taken two principal points. First, it maintains that the Court has no jurisdiction to grant the declarations sought, principally because this would involve interference with the Adjudicator's discretion and in particular his right to set his own timetable. Secondly, the Defendant contends that the extended timetable set out above is more than sufficient in all the circumstances, particularly given that the Claimant has had the majority of the final account documentation since March 2008.

B. JURISDICTION

11. Paragraph 9.4.1 of the TCC Guide (Second Edition, First Revision) is set out at page 446 of volume 2 of the White Book. The paragraph provides that:

"9.4.1 As noted above, the TCC will also hear any applications for declaratory relief arising out of the commencement of a disputed adjudication. Commonly, these will concern:

(a) Disputes over the jurisdiction of an adjudicator. It can sometimes be appropriate to seek a declaration as to jurisdiction at the outset of an adjudication, rather than both parties incurring considerable costs in the adjudication itself, only for the jurisdiction point to emerge again at the enforcement hearing …

(c) Disputes over the permissible scope of the adjudication, and, in particular, whether the matters which the claimant seeks to raise in the adjudication are the subject of a pre-existing dispute between the parties."

On its face, therefore, this paragraph would suggest that, in general terms, the Court does have the jurisdiction to entertain the Part 8 claim in these proceedings.

12. In my view, that result would be consistent with commonsense and in accordance with the TCC's aim to provide assistance (albeit only in those limited circumstances where it is appropriate) in ongoing adjudications: see VitpolBuilding Service v Samen [2008] EWHC 2283 (TCC) and the cases cited there. If an ongoing adjudication is fundamentally flawed in some way, or may be just about to go off the rails irretrievably, then it seems to me that it must be sensible and appropriate for the parties to be able to have recourse to the TCC: otherwise a good deal of time and money will be spent on an adjudication which will ultimately be wasted. That was recognised in the early cases involving a challenge to the adjudicator's jurisdiction. For example, in ABB Zantingh Ltd v. Zedal Building Services Ltd [2001] BLR 66, HHJ Bowsher QC said that it was "an entirely proper course" for the jurisdiction dispute to be referred to the Court during the adjudication itself, in order to prevent wasted effort and costs being expended on an adjudication which the adjudicator may not have had the jurisdiction to determine.

13. It seems to me that, if the Court has the power to grant a declaration in respect of an adjudicator's jurisdiction in an ongoing adjudication, it also has the power to grant a declaration if it considers that there has been or will be a breach of natural justice which will have a significantly prejudicial effect on the responding party, in this case the Claimant.

14. It is, I think, possible to illustrate this by reference to the recent decision of Akenhead J in CJP Builders Ltd v William Verry Ltd [2008] BLR 545. There, following the conclusion of an adjudication, the responding party successfully resisted the application to enforce the adjudicator's decision because the Judge found that the adjudicator had wrongly decided that the contractual adjudication scheme in operation in that case prevented him from extending time for the responding party's response, and the adjudicator had therefore wrongly failed to have regard to that response at all. The Judge held that this was a breach of natural justice which would have had serious consequences. I consider that, if that matter had come before the Judge during the adjudication, it is idle to suggest that a different result would have occurred, or that the Judge would not have had the jurisdiction to make the order allowing the extension and requiring the adjudicator to have regard to the response. A good deal of effort, time and cost would therefore have been saved.

15. In developing his jurisdiction argument Mr Buckingham, on behalf of the Defendant, argued that the declarations sought by the Claimant in this case were akin to an injunction and that, by reference to the decision of HHJ Wilcox in Workplace Technologies plc v E Squared Ltd [2000] CILL 1607, the Court did not have the necessary jurisdiction to grant such an injunction. I am not persuaded that the declarations sought here are akin to an injunction, but even if it was, I am clear that in Workplace Technologies HHJ Wilcox did not say that the Court did not have the jurisdiction to grant an injunction. What he properly emphasised was that such an injunction would only rarely be granted, which is a very different thing.

16. Mr Buckingham's other submission was that, since the declarations sought went to the Adjudicator's discretion to fix his own timetable and to conduct the adjudication in a manner which he saw fit, the Court should not entertain an application which would interfere with that discretion. In my judgment, that submission has greater force, but it does again seem to me to be a matter of fact and degree, rather than a matter of principle. Again I would conclude that, if the Court decided that this was one of those very rare cases where the Adjudicator's exercise of his discretion was in some way fundamentally wrong in law, the Court should not sit idly by until the adjudication is finished and contested enforcement proceedings are in train.

17. Accordingly, for these reasons, I have concluded that the TCC does have the jurisdiction to consider the application for a declaration in this case. But I make it clear, as I hope I made clear in argument, that such a jurisdiction will be exercised very sparingly. It will only be appropriate in rare cases for the TCC to intervene in an ongoing adjudication. It is important that, wherever possible, the adjudication process is allowed to operate free from the intervention of the Court. Applications of this sort will be very much the exception rather than the rule. They will only be granted in clear-cut cases such as (I venture to suggest) those that existed in CJP Builders.

C. NATURAL JUSTICE

18. It is also necessary to say something about the application of the rules of natural justice to an adjudication of this sort, since that is the basis of the Claimant's complaint in this case. I take it to be settled law that the rules of natural justice do generally apply to the adjudication process: see, for example, Discain Project Services Ltd v Opec Prime Development Ltd [2001] BLR 287; Glencot Development and Design Company Ltd v Ben Barratt & Sons (Contractors) Ltd [2001] BLR 207; and RSL (South West) Ltd v Stansell Ltd [2003] EWHC 1390 (TCC).

19. But these and other authorities have stressed that there are obvious limits on the application of these rules to the adjudication process. As HHJ Bowsher QC pointed out in Discain,

"The adjudicator is working under pressure of time and circumstance which make it extremely difficult to comply with the rules of natural justice in the manner of a court or arbitrator."

Or, as HHJ Lloyd QC put it in Balfour Beatty Construction Ltd v London Borough of Lambeth [2002] EWHC 597 (TCC), the purpose of adjudication is not to be thwarted "by an overly sensitive concern for procedural niceties".

20. Accordingly, a Court has to approach an alleged breach of the rules of natural justice in an adjudication with a certain amount of scepticism. The concepts of natural justice which are so familiar to lawyers are not always easy to reconcile with the swift and summary nature of the adjudication process; and in the event of a clash between the two, the starting point must be to give priority to the rough and ready adjudication process. It seems to me that such an approach is even more necessary in circumstances where, as here, it may be said that the breaches of natural justice have not yet occurred and, depending on what happens, may never in fact arise.

21. The best-known authority on the issue of whether a complex dispute with a good deal of supporting documentation can ever fairly be determined by the adjudication process is CIB Properties Ltd v Birse Construction Ltd [2005] 1 WLR 2252. HHJ Toulmin CMG QC held that it was for the adjudicator to decide whether or not he could fairly reach a decision within the timetable. On the facts of that case, he concluded that the adjudicator had been careful to consider how he could conduct the adjudication fairly at all stages and, by granting a number of extensions of time, the adjudicator had succeeded in doing just that. Those extensions had been agreed by the parties at the adjudicator's urging.

22. With those authorities in mind, therefore, I now turn to deal with the substantive application in the present case.

D. SHOULD A DECLARATION BE GRANTED?

23. On the information before me, I have concluded that the Defendant commenced these adjudication proceedings at a time (the last day before the Christmas vacation) and in a manner (a Referral Notice bringing with it 37 lever arch files including important new material never seen before) in order to obtain the greatest possible advantage from the summary adjudication procedure. Such conduct is not uncommon. It is a matter of regret that the adjudication process, which was itself introduced as a method of dispute resolution which would avoid unnecessary legal disputes and procedural shenanigans, is now regularly exploited in the same way. I am confident that the enthusiasts for adjudication in and out of Parliament in 1996 did not envisage that the system would be used for the making of a claim of this type and in these circumstances. However, the Courts have long accepted that the 1996 Housing Grants (Construction and Regeneration) Act, and the standard forms of building and engineering contracts amended in its wake, permit such claims to be made, and what is more those claims can be made "at any time". The difficulties that this latitude can create explain why the Claimant now seeks these declarations in accordance with CPR Part 8.